tighten things up and cut the cycle as much as
has? More to the point, would it be smart to do so? Yes to the former; almost certainly no, to the latter. Because there's a point of diminishing returns in tightening the goods-in-progress cycle when you're making things yourself.
It's the old "90% problem" in business: When you get things to somewhere around 90% efficiency, the incremental costs of further improvements can skyrocket. Moving from 90% to 95% can cost a bundle ... and trying to move to, say, 98% can utterly wreck the economics of a finely tuned model.
Now invert that. Getting down to five or six days was heroic, remarkable, profitable. Cutting that in half, all other things being equal, wouldn't save Dell money, but instead would
money. And, maybe, big money.
But what if Dell decided to get out of the business of making PCs? It could still design them, spec them in excruciating detail ... and, at the other end of the line, sell them. It could enforce all the QC it wants. But in the middle it hires a respected contract manufacturer, such as
, sets two- to three-day turnaround as a requirement, transfers its existing deals and clout with suppliers to that assembler and gets out of the business of actually
By not devoting huge resources to building its lowest-margin products, Dell frees capital, space and management focus to work even harder on the big returns. Yet it keeps all the advantages of its line of desktop PCs -- one-stop shopping for customers, boosting gross sales, buying component-prices down to the lowest possible level.
In effect, it's focusing its best people and its capital on the right goals: long-term growth and big margins.
My friends muttered for a minute, and then they tried to make some counterpoints.
- Dell could never achieve such tight controls through an outside manufacturer. Why not? It transfers whatever technology and management expertise it needs to the assemblers it chooses. It sets delivery-time schedules. It establishes quality standards. It puts some of its design and support people onsite with the assemblers to make sure they're part of the process. It could make the transition in less than a year.
Customers would be skeptical of quality. Huh? Just like Dell notebook buyers are skeptical of the quality of the machines they're buying today? Give me a break.
Dell's manufacturing prowess is one of its big assets. Agreed, but irrelevant, if that part of the process of designing, making and selling PCs can be done as well by others, for less.
Dell would have to keep making servers, anyway. Well, they wouldn't
have to, but that might be smart. And yes, assembling a server isn't that different from assembling a PC. So what? Dell could grow its server business 10-fold and still use far less manufacturing space, staff and capital than it presently uses to assemble its desktop PCs.
Dell would never do it. You're kidding. Dell has shown more willingness to change, to get ahead of the curve in the PC business, than any other maker. Dell may
notdo it, but if they judge it would be in their best interests you bet they'd do it. And reducing cycle-time is a long-time mantra at Dell.
So will it happen? Will Dell stop making PCs?
I don't know. But it sounds smart, and I wouldn't be surprised if Dell makes the leap.
With its announcement last week of its new S&S initiatives - especially its new, more-affordable servers and its joint e-commerce consulting venture with
-- Dell is consciously positioning itself far away from the lingering "boy makes good from his dorm room" image that has dogged the company for years.
Pretty soon we're going to have to stop listing Dell among the box makers and find a new category for the company. Like among the emerging Net S&S powerhouses, a group I expect Dell to lead.
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Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at